International Business Machines Corporation (IBM)

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INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM)

Around the year 1911 Charles Ranlett Flint (1850–1934) founded the Calculating-Tabulating-Recording (CTR) company. He merged two companies he had previously managed, International Time Recording Company and Computing Scale Company of America, with an unrelated firm called Tabulating Machine Company. A man named Herman Hollerith (1860–1929) had founded the Tabulating Machine Company. Hollerith was an engineer who invented a tabulator to punch, sort, and count cards. This merger was the beginning of IBM. It would eventually become the world's largest computer company.

The tabulator served the needs of the U.S. Census Bureau in the 1890 and 1900 censuses. It was used for processing large amounts of data. Other organizations with similar needs adopted the machine for their own use. In the early twentieth century society was becoming more urban and commercialized. Consequently the ability to process financial and other data became an important factor in running a profitable business.

CTR did not become focused on the tabulator as its primary product until John Watson (1874–1956) was hired as the company's general manager in 1914. Watson had worked at National Cash Register (NCR) for about 20 years. Although he rose to become the company's general sales manager, he was under a cloud when he came to CTR. He had been convicted along with his boss, John Patterson, of violating the Sherman Antitrust Act on behalf of NCR. When the government dropped its case against NCR in 1915, Watson was made president of CTR.

Watson understood that CTR's future lay in its tabulating division. The tabulator was a basic office tool that would be in ever-increasing demand as the number of office workers grew. He quickly established a well disciplined sales force. He hired many former NCR salespeople. They were courteous, well-dressed, and trained in selling a service, not just a product.

The nation's economy boomed in the 1920s. In 1924 CTR became IBM. By the end of the decade it was a dominant leader in providing large tabulating systems for public and private customers. The company was very profitable in the 1920s and 1930s. It operated in the less competitive business segment of large custom–designed systems. IBM's practice of leasing rather than selling its machines increased its profits. Its cross–licensing agreements with its chief competitor, Remington Rand, kept the two companies from antagonizing each other.

IBM also required its customers to use IBM cards for its tabulating machines. There were literally millions of such cards already in use. IBM was selling nearly 85 percent of all keypunch, tabulating, and accounting equipment in the United States. The company's growth remained unchecked despite a 1936 U.S. Supreme Court ruling that ordered IBM to lift its restriction that customers use only IBM cards.

Demand for IBM's products increased when President Franklin Roosevelt's administration (1933–45) inaugurated the New Deal during the mid–1930s. The newly created federal bureaucracy needed IBM's calculating machines. The newly formed Social Security Administration placed an order for more than four hundred accounting machines and 1,200 keypunchers. IBM had successfully carved out a market niche that addressed the need of large–scale organizations that required machines capable of massive amounts of calculations.

World War II (1939–1945) saw IBM's sales more than triple. They reached $141.7 million by the end of the war. Demand was high in both governmental and private sectors. The company's machines were used to monitor the manufacture and movement of numerous products used in the war effort. The military had a need for high–speed calculators. This resulted in IBM creating the Mark I, a machine that is considered by many to be the world's first computer. It used IBM punch cards for large calculations. It also retained a set of rules to apply to future input. Practically, it was the first calculator with memory. The Mark I had 765,000 parts and 500 miles of wire, yet it was still less powerful than the kind of hand–held calculators which were common in the latter half of the twentieth century.

IBM was involved in other computer–related projects during World War II and after. But in 1951 its old rival Remington Rand took the lead by marketing the UNIVAC. IBM remained cautious about entering the computer market. At the time IBN punch cards were used even by electronic computers and the company still controlled 85 percent of their market.

In 1952 Thomas Watson, Jr. (1914–1993), succeeded his father as president of IBM. The new president led IBM into the computer market; IBM's first business computer, the 701, was introduced in 1951. As IBM marketed new models its customers began switching from IBM tabulating equipment to IBM computers.

IBM also began to expand internationally. In 1949 it established a new subsidiary for international sales, IBM World Trade Corporation. Thomas Watson's younger brother, Dick Watson, headed the subsidiary. While World Trade had sales of only $6.3 million in 1949, it operated in 58 countries, giving the company a base for future expansion. In many countries IBM set up local subsidiaries to sell IBM products and conduct further research and development. As those countries adopted computers IBM was able to achieve dominance on those markets. Only Japan and the United Kingdom produced local competitors for IBM. This left IBM with a 33 percent market share in those two nations. World Trade eventually surpassed the domestic IBM in sales.

Computers began developing more rapidly in the late 1950s. In 1958 Sperry Rand and Control Data Corporation (CDC) introduced the second generation of computers. The new machines featured transistors instead of vacuum tubes. Then a third generation of machines using integrated circuitry was quickly introduced. IBM responded with a large capital–spending program. Six new plants were built and thousands of workers were hired. In 1965 IBM introduced its 360 line of small, fast computers with their own exclusive software. The 360s were immediately successful and resulted in IBM's dominance over the computer market for more than a decade. From 1965 to 1975 IBM sold 65 percent of all U.S. computers.

IBM's competitors challenged the company by specializing in different niches of the computer market. When the first microcomputers were introduced in 1960 IBM chose not to enter the market. IBM did not enter the personal computer market until 1980. By that time it was unable to achieve the dominance it had with its mainframes and minicomputers. Nonetheless sales of the 360 line and the subsequent 370 line continued to grow. In 1984 IBM achieved peak earnings of $6.6 billion on sales of $46 billion.

During the 1980s IBM was held up as a model of business excellence. But by the end of the decade the company needed an overhaul. Revenues and earnings were weak, and the company's stock price was in decline. Its worldwide market share had fallen from 36 percent to 23 percent. IBM could no longer keep its dominant position in the fast–changing world of computers simply by building bigger and faster machines. The corporation had to find other ways to compete.

IBM's turnaround began in 1993 when Louis Gerstner, former chair of RJR Holdings Corporation, took over as Chief Executive Officer (CEO). The measures he took to revive the company included de–emphasizing research and development, refocusing on services and systems, and cutting the work force. He also revived the company's faltering mainframe business.

IBM also embarked on a more aggressive acquisitions program. In 1995 it acquired the software company, Lotus, for $3.5 billion. Other software firms were bought. IBM also invested $1.2 billion in Prodigy with Sears, Roebuck, and Company before selling it at a loss to the company's management and other investors.

With computer networking becoming more predominant in the business world IBM began to make all of its products network-ready. Corporate use of the Internet also became more widespread. IBM sought to provide products for corporate intranets and new Web technologies. In 1997 it introduced a new line of lower–cost mainframe computers that promised the same speed as traditional mainframes. In 1998 it introduced a new line of so–called "e–business tools." These included servers, work stations, PCs, and notebooks. They were meant to facilitate business transactions over the Internet.

"Deep computing" was another area of emerging growth for IBM. It linked high–speed computers with analytical software. The U.S. Department of Energy and the National Aeronautical and Space Administration (NASA) were two major customers for this type of supercomputer.

As the 1990s drew to a close IBM was in a much stronger position. Despite it's poor market position in the computing industry at the beginning of the decade, IBM was being held up once again as a model of business excellence.

See also: Computer Industry, Herman Hollerith, Microsoft